More Than Meets the Eye in Philly - 06/17/10

Several key components of the Philly survey were strong!

One can be negative on the outlook for equities and the domestic economy for many reasons, but the weak Philly Fed is not a good reason!

Maybe I spent too much time at Smokey Joe's bar while at Wharton, but upon further analysis, the market seems to be over-reacting to the headline Philly Fed, and I am covering some of my short rentals into the whoosh lower.

Specifically, many of the components were inconsistent with the Philly headline and with the in-line LEI (+0.4% vs. flat in May), which was announced at the same time. The six-month diffusion index in the LEI and the rate of change were 80 and +7.9%, respectively. The LEI signals negative growth when it reads -3.5% and the diffusion index is under 50.

As well, the Philly release conflicted with the strong Empire PMI and industrial-production gains reported earlier in the week.

Moreover, several important components of the Philly release were strong -- new orders increased, delivery times lifted and the six-month outlook improved. Yes, the labor component was weak -- but this is well known!